Civil AND Criminal Liability for Breaching a Contract? Yes Virginia, It Does Exist.

NewsJuly 19, 2018

On July 9, 2018, the Ohio Fifth District Court of Appeals upheld contractor Jack Groesser’s criminal conviction for failing to refund a homeowner for undelivered materials and unperformed home renovation services. In State v. Groesser, 2018-Ohio-2713 (5th Dist.), a Stark County jury found Groesser criminally guilty under Ohio’s “theft by deception” statute, Ohio Rev. Code §2913.02, when he accepted payments from a homeowner to purchase supplies, merchandise and appliances he never delivered, and for home renovation services he failed to provide or complete. Groesser was sentenced to pay $28,000 in restitution, plus serve 60 days in jail with five years of community service.

Groesser is not the first contractor in Ohio to be found guilty of criminal “theft by deception” for breaching a construction contract. In State v. Messer, 2017-Ohio-1223, Ohio’s Sixth Appellate District upheld a contractor’s criminal “theft by deception” conviction when it accepted payment for, but never delivered, many materials, supplies and fixtures, failed to complete the job, was not licensed and failed to obtain the necessary permits. The Ninth Appellate District similarly found a contractor guilty of “theft by deception” by leaving projects uncompleted, providing unworkmanlike services, and accepting payment for windows never ordered or installed. State v. Vertucci, 2017-Ohio-2838. At least one Ohio court considered a contractor’s failure to pay its subcontractors as a contributing factor to his “theft by deception” conviction. State v. Piesciuk, 2005-Ohio-5767 (12th Dist.). The vast majority of the charges, and convictions, arise in the residential construction arena. Prosecutions also occur in the commercial construction context, where it is clear that the wrongdoer had no present intention or ability to perform and where little or no performance was rendered.

This does not mean that contractors are automatically exposed to both criminal and civil liability, with steep damages, for every alleged contractual breach. Indeed, the controlling statutes and interpreting caselaw require claimants to prove the offender acted with deceptive knowledge and/or intent. However, the Groesser holding is illuminating in that it illustrates the sufficiency of circumstantial evidence to prove a “theft by deception” offense. In Groesser:

Groesser met the homeowner at Lowe’s to pick up cabinets, appliances and fixtures, and instructed the homeowner to give him a $25,000 check to pay for these materials, which he never delivered to the homeowner.

Groesser only partially completed the home renovation project work, and appeared sporadically on the project.

Groesser required, and received, additional money for change orders.

Groesser eventually abandoned the project, leaving his tools behind, along with an uninhabitable home, forcing the homeowner to hire new contractors and purchase the cabinets, appliances and fixtures Groesser never delivered.

The Groesser court found these facts sufficient evidence proving Groesser’s criminal intent, and reasoned that intent is not, and cannot be, proven by objective proof, “because intent lies within the privacy of a person’s own thoughts.” Intent is proven by the facts surrounding the circumstances, with the presumption that the accused intended the reasonable consequences of their voluntary actions. The court accordingly confirmed that “circumstantial evidence and direct evidence inherently possess the same probative value” in a theft-by-deception analysis.

Groesser asserted that the criminal charges were improper, as the situation was a civil contract dispute, not a crime. The court correctly disagreed, holding that, in certain situations, breach of contract claims can result in both civil and criminal liability.

Ohio law also permits civil actions to recover damages for criminal acts. Ohio Rev. Code §2307.60 permits civil actions for damages based on the violation of any criminal statute (unless a specific exception applies), and §2307.61 permits civil actions for damages against a person who willfully damages property or commits a theft offense. In other words, statutory claims exist permitting a plaintiff to recover, in a civil lawsuit, damages resulting from defendant’s criminal theft and fraud offenses (including bounced checks pursuant to Ohio Rev. Code §2913.11). In its seminal case, the Ohio Supreme Court confirmed that a criminal conviction is not required to assert or prevail on these civil claims. Jacobson v. Kaforey, 2016-Ohio-8434 (2016).
Not only are compensatory damages recoverable for these civil claims, but the costs of the action, attorneys’ fees and punitive, treble or exemplary damages are also available. These damages are recoverable even if a criminal penalty has already been assessed for the same occurrence and vice versa - - the criminal penalties can be assessed even if civil damages have already been awarded. Both the United States Supreme Court, and Ohio courts, confirm that the “double jeopardy” (double recovery) defense is inapplicable, because the civil damages serve as a remedy between private parties, whereas a criminal penalty serves as an offender’s state punishment. U.S. v. Halper (1989), 490 U.S. 435; see also See City of Columbus v. Bednarz, 1995 Ohio App. LEXIS 311 (10th Dist.).

While the Groesser holding does not address a contractor’s civil liability for his criminal actions, it provides another source of guidance on what is deemed sufficient evidence to hold a contractor criminally liable for what appears, on its face, contractual breaches. In turn, these actions potentially support a civil claim, even without a criminal conviction. Contractors need be aware of the exposure, and remedies, available to those injured by contractual breaches, which may also be criminal acts. Not every civil breach of contract is also a criminal act, but some are. Contractors should consult legal counsel regarding all potential remedies depending on the situation, but breaches that also include bounced checks, obtaining money, labor, equipment or materials under false pretenses, diversion of funds to personal use or other projects, and little or no attempt to provide the required consideration are all factors that weigh in favor of potential criminal liability.